Everybody’s favorite season has arrived.
It’s tax season and whether you dread it or not, if you live in The United States, own property or earn an income you are going to have to confront it.
When you own property, the best way to reduce your taxable income is to take advantage of the home mortgage interest tax deduction. However many home owners are losing the advantage by not itemizing their taxes.
There are a number of tax breaks for home owners and hopefully this post will clear up any confusion you may have with the home mortgage interest tax deduction.
The home mortgage interest tax deduction reduces a home owner’s income by the amount of interest that has been paid on the principal of the loan. For example if you pay $1,000 a year in mortgage interest then your gross income will be reduced by $1,000.
There are a number of guidelines that you will need to follow in order to receive the deduction:
- You must itemize your Federal Income Taxes.
- The loan must be on a primary or second home.
- The debt of your loan must be a secured debt.
- The loan must be for you to build, renovate or buy a home.
The percentage of interest that you can deduct depends on the date of the mortgage, the amount of the mortgage, and how you use the mortgage proceeds. In some cases, you may be able to deduct 100% of the home mortgage interest. There is a great graphic located on the IRS website. It can provide further answers to any questions you may have about the home mortgage interest tax deduction.
When filing your taxes you will need the 1098 form sent to you from your mortgage lender and the Schedule A form from the IRS.
The origination of the home mortgage interest tax deduction began as an incentive to become a home owner. And in some situations that is still a bonus to owning a home. With the rules, regulations and tax benefits being reduced to control governmental spending, the tax break isn’t as great as some may think. With the cost of owning a home beyond the cost of a mortgage, potential buyers should consider more than just the deduction as a reason to buy a home.
This article was written by Jessica at Everything Finance. Everything Finance is a site about just that, everything related to finance. You can get information about investing, saving money, shopping, blogging, and making money online. If you like what you see here, make sure to stop by or better yet subscribe to our feed so you don’t miss a thing.
“■Your total of itemized deductions must not be more than the standard deduction offered to those who do not itemize their taxes”
Not true. In fact, if the total of your itemized deductions isn’t more than the standard deduction, you should just take the standard deduction.
“The percentage of interest that you can deduct depends on the age of the home. ”
Not true. There is no requirement of any kind as to the age of the home.
Hi Petunia 100, thanks for weighing in. This is a guest post and I am certainly not a tax expert so I totally missed it. After reviewing the IRS site I corrected the information you mentioned. You’re right the age of the home doesn’t matter but rather “the age of the mortgage, the amount of the mortgage, and how you use the mortgage proceeds.”
Thanks for helping me correct this information! 😀
My pleasure. 🙂
Also, it is worth noting that interest on up to 100k of home equity is also fully deductible.
Prior to 10/13/87, all interest on home equity debt was fully deductible. After 10/13/87, only interest on the first 100k of home equity debt is deductible. This is the reason you see the date 10/13/87 in the flow chart. As you note, it is the age of the mortgage which is to be considered, not the age of the home.
Thanks for catching the home typo. I definitely meant to put mortgage in there.
The other part wasn’t explained well and that is completely my fault.